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Climate Change and the Future Regulation of Greenhouse Gas Emissions in the United States: President Obama Introduces New Climate Action Plan

Alerts / July 18, 2013

On June 25, 2013, President Obama released his Climate Action Plan (the Plan) detailing the current administration's comprehensive strategy to address climate change.[1] The Plan focuses on "three key pillars" of action: reducing domestic carbon pollution, preparing the United States for the impacts of climate change and leading international efforts to combat global climate change and prepare for its impacts. The most notable directives articulated in the plan -- and certainly the ones that will have the greatest impact on American industry -- are those relating to the first "pillar" of action, the reduction of domestic carbon emissions. A summary of the various aspects of the Plan can be found in this table.

CARBON EMISSION LIMITS

At the forefront of the new Climate Action Plan is President Obama's goal to significantly reduce so-called "carbon pollution" in the United States. To supplement the Plan, the President released a Memorandum entitled "Power Sector Carbon Pollution Standards" (the Memo), which establishes an aggressive timeline for the U.S. Environmental Protection Agency (EPA) to develop carbon emission standards for both new and existing power plants.[2] Specifically, the Memo directs the EPA to propose carbon emissions standards for new power plants by September 20, 2013. These new proposed standards will replace the agency's April 2012 proposal of 1,000 pounds of carbon dioxide per megawatt-hour for new sources. The EPA has already sent its new proposed rule to the White House Office of Management and Budget for review and approval. It is not clear at this time at what level the carbon emission standards for new power plants will be set.

The Memo also establishes a very aggressive timeline for the EPA to propose and adopt, and the states to implement, "carbon pollution standards, regulations or guidelines, as appropriate, for modified, reconstructed and existing power plants."[3] In particular, the EPA must issue its proposal by no later than June 1, 2014, finalize it by no later than June 15, 2015, and require the states to submit implementation plans and supporting regulations by no later than June 30, 2016. There will be staunch opposition to the EPA's proposal from industry, the states and non-government organizations, and the issues that will need to be addressed by the rule will be complex and have significant economic consequences. For example:

What happens to existing state programs (e.g., California and the Regional Greenhouse Gas Initiative)?

Will the EPA allow for market-based programs such as Cap-and-trade? Will the standards adopted by the EPA be tailored to specific fuels and technologies?

How will the standards interact with EPA's existing new source review and "modified unit" rules?

What are the potential impacts on the electricity market (and electricity consumers)?

These questions, as well as a host of other issues, will need to be vetted and resolved by the EPA as part of the rulemaking process. Ultimately, most believe that the timeline established by President Obama is unrealistic and will likely not be met by the EPA.

Despite an aggressive approach to power plant carbon emission standards, the Plan and Memo are silent with respect to greenhouse gas (GHG) emission standards for the petroleum sector, which the EPA is required by Consent Decree to propose and finalize. In all likelihood, the EPA will defer its GHG emission standards for this sector until the rulemaking process for the power plant sector is complete. Finally, the Plan confirms the President's intent to evaluate the need to reduce methane emissions across various industrial sectors, including possibly requiring further reductions in the oil and gas sector. Ultimately, however, the Plan notes the need for intergovernmental coordination and additional information to identify opportunities to reduce methane emissions.

RENEWABLE ENERGY INCENTIVES AND EXPEDITED LICENSING

In addition to calling for new carbon emissions standards for new and existing power plants, the Plan also establishes a goal of doubling renewable electricity generation in the United States by 2020. To accomplish this goal, the Plan directs several key federal departments to implement new measures to accelerate the clean energy permitting process. Most notably, the Department of the Interior has been directed to permit 10 gigawatts of renewable energy on public lands by 2020. The Department of Defense has also committed to deploy 3 gigawatts of renewable energy on military installations by 2025.

The Administration also will take steps to encourage the development of hydroelectric power at existing dams. The Red Rock Hydroelectric Plant in Iowa is the first energy project to be designated as "high priority" under the Federal Infrastructure Projects Permitting Dashboard, the stated goal of which is to "[cut] timelines [for permitting] in half for major infrastructure projects while creating incentives for better outcomes for communities and the environment."[4]

The Plan also commits to expanding and modernizing the nation's electric grid to provide more reliable and cost-efficient electricity to American consumers. As an initial step toward achieving this goal, President Obama issued a Presidential Memorandum on July 7, 2013, directing federal departments to streamline the siting, permitting and review process for electric transmission projects across federal, state and tribal governments.[5] This Memorandum calls for the establishment of energy corridors in western states to expedite the permitting and environmental review process for projects subsequently completed in such corridors, the preparation of a study on potential corridors in non-western states and a requirement for key federal departments to coordinate permitting efforts and to develop and "integrated, interagency pre-applicant process for significant onshore (emphases added) electric transmission projects requiring federal approval."[6]

To complement the various renewable energy initiatives introduced by the Plan, the President has firmly committed to long-term investment in clean energy innovation. Most notably, the Department of Energy will be issuing a Federal Register Notice within the coming weeks announcing a draft of a solicitation making up to $8 billion in loan guarantee authority available for a number of advanced fossil energy products. The Obama Administration also reaffirmed its commitment to clean energy research by increasing funding for clean energy technology across all agencies to $7.9 billion for the Fiscal Year 2014, representing roughly a 30 percent increase in funding.

The Plan also renews Obama's commitment to improving fuel economy standards, instructing the Administration to partner with industry leaders in developing post-2018 fuel economy standards for heavy-duty trucks, buses and vans to extend and advance the Model Year 2014-2018 standards introduced in 2011. These standards are expected to reduce GHG emissions from heavy duty vehicles by roughly 270 million metric tons. The plan also reaffirms the President's first-term passenger vehicle standards requiring an average performance of 54.5 miles per gallon by 2025.

In addition to committing to reduce GHG emissions, promote renewable energy generation and invest in clean energy innovation, the President has also committed to cutting energy waste in homes, businesses and factories. The Plan details a number of steps that the Administration will take in order to achieve the lofty goal of doubling energy productivity levels of 2010 by 2030. Most notably, the Administration will work towards improving efficiency standards for appliances and federal buildings to reduce carbon pollution by at least three billion metric tons cumulatively by 2030.

Additionally, the Department of Agriculture's Rural Utilities Service has been instructed to finalize its proposed update to the Energy Efficiency and Conservation Loan Program to provide up to $250 million to rural utilities to facilitate investments by business and homeowners across rural America in energy efficiency. The Plan will also continue the Better Buildings Challenge -- which was implemented in 2011 to help commercial and industrial buildings become at least 20 percent more energy efficient by 2020 -- and expand upon it by including multifamily housing and launching the Better Buildings Accelerators track to encourage the adoption of state and local policies to cut energy waste.

ADDITIONAL MEASURES

Finally, the Plan articulates a number of broad mandates and lofty goals proactively designed to manage the risks associated with climate change and to make the United States a world leader on addressing global climate change. One potential controversial policy goal, as stated in the Plan, is the President's desire to eliminate U.S. fossil fuel tax subsidies in his Fiscal Year (FY) 2014 budget. If approved (an unlikely prospect given the political divide in the U.S. Congress), the President's 2014 budget would eliminate current subsidies for all fossil fuels (e.g., oil, gas and coal products). This would eliminate, for example, the deduction of intangible drilling costs for the oil and gas industry. A summary of these initiatives, as well as those discussed in more detail above, can be found in this table.

CONCLUSION

While President Obama's newly proposed Climate Action Plan is certainly extensive in terms of the scope of the issues addressed, it provides little substantive insight as to the economic impact that will inevitably result from the undertaking. On its face, the Plan purports to commit over $20 billion in federal funds to clean energy projects, while remaining virtually silent on the costs that will be borne by industry and the American consumer. Funding to implement the Plan also is in doubt, particularly given that the Republican-controlled House of Representatives appears unwilling to continue funding for renewable energy. We will continue to monitor the President's Climate Action Plan, most notably, in the near term, the EPA's carbon rules for the power sector.